I have spent 20 years working in nonprofit think tanks, the last 13 as a resident scholar with the Institute for Policy Innovation in Dallas. I also ran the Washington, D.C.-based Council for Affordable Health Insurance for nearly nine years. While I cover a range of political, economic and policy areas, I specialize in health policy. Prior to joining the think tanks, I taught philosophy. I received all three of my degrees—BBA in economics, masters in divinity and Ph.D. in humanities—from Texas universities. I was an ethicist for a medical school's panel reviewing human experimentation. I'm a member of the U.S. Commission on Civil Rights Texas Advisory Committee. For several years I was a political analyst for the USA Radio Network, and I hold a 6th degree black belt in Tae Kwon Do and still teach.

English: Kathleen Sebelius speaking after her official nomination as Secretary of Health and Human Services. (Photo credit: Wikipedia)

President Obama and the Democrats repeatedly claimed that getting every American insured would lower health care spending. However, every indication is that health care spending will explode.

To see why look at Massachusetts Institute of Technology economist Amy Finkelstein’s groundbreaking 2005 work on the introduction of Medicare.

The Medicare program provides a good case study because a large number of uninsured people, about 7.5 percent of the population, got health insurance almost immediately. Government estimates suggest that ObamaCare will provide coverage for about 32 million uninsured Americans, roughly 10 percent of the U.S. population. But given that not all of them will get coverage immediately, the percentage of newly covered Americans will likely be similar to Medicare’s introduction.

Finkelstein wrote in 2007, “By 1970, the program caused a 37% increase in hospital spending. This is an enormous number.” That 37 percent is over and above what hospital spending would have been, even after providing the additional care to millions of newly covered seniors.

Analysts at the time completely missed how the coverage expansion would increase total spending. As Forbes contributor and health analyst Avik Roy has pointed out:

“When Medicare was enacted, the staff of the House Ways and Means Committee (which was responsible for estimating the program’s costs and effects, since the Congressional Budget Office had yet to be created) projected that its cost would grow from under $5 billion in its first year to $12 billion in 1990 — accounting for inflation — because they expected that hospital-cost growth would not exceed wage growth from 1975 onward. Instead, Medicare expenditures grew at roughly 2.4 times the rate of inflation over that period, and in 1990 reached not $12 billion but $110 billion.”

The reason? Health insurance in the U.S. has at least two effects on health care spending. The first is the additional spending that results from people getting care they might not have received without coverage.

For example, if an uninsured man with a hernia decides to have the hernia surgically repaired once he has health coverage, the surgery will increase total health care spending. But that increase is appropriate; the surgery is addressing a serious medical condition.

However, the type of insurance also has an impact on health spending. We rely on a third-party payment system that dramatically reduces any incentive for the patient to be a value-conscious shopper in the health care marketplace.

If, for example, the insurer just wrote the patient a check for, say, 80 percent of the cost of the surgery, patients would be much more sensitive to the cost of care. Incidentally, that’s the way most other insurance markets (e.g., auto, homeowners, etc.) work.

But since our health insurance system usually pays the providers themselves, there is not much reason to be a value-conscious shopper. Indeed, it’s almost impossible to be, because patients can’t easily access prices or make comparisons as we can in every other sector of the economy. The result is we overutilize care and higher total spending than is necessary to treat the conditions.

And ObamaCare doubles down on that system by increasing the price insulation. Just think of the contraception issue. ObamaCare requires all contraceptives to be free to the patient. There are birth control pills that cost in the $10-a-month range and there are new products that cost in the $150-a-month range. If both are free, the patient has no economic reason to choose a less-expensive option.

Government number crunchers incorporate the spending increases from increased care, but they seldom factor in the spending increases that result from price insulation — which is why they always underestimate the spending explosion.

Of course, government-run health care systems also insulate the patient from the cost of care, but they control costs by imposing a fixed budget, which eventually leads to the rationing of care.

So how much more might hospital care cost under ObamaCare?

Spending on hospital care had been growing between $30 billion and $40 billion a year between 2006 and 2013. But with ObamaCare cranking up in 2014, the government estimates jump to an annual increase of between $60 billion and $70 billion over the next five years.

But those estimates are primarily calculating the increased utilization that comes from covering an estimated 32 million more people, not the inflationary bump that comes when people are insulated from the price of care.

If we were to include Finkelstein’s insurance inflation factor, hospital spending might be closer to $1.8 trillion in 2019 instead of the estimated $1.3 trillion. Of course, spending in other areas covered by ObamaCare will also go up by some percentage.

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Mark: I’ve been involved in health policy for 20 years and no conservative ever said the U.S. health care system could not be improved upon. They have all agreed there are many needed policy changes — just not the ones offered by Clinton or Obama. On the other point, health insurers do not say that free contraception lowers health care costs. Contraception is very inexpensive, and even free for low-income women through subsidized clinics or planned parenthood. There are unwanted pregnancies, but most of them are not because a woman didn’t have access to contraception, she — and/or the male — just didn’t use it. And yes, the elderly spend more on Medicare. Finkelstein factored in those elements; that’s what economists do in studies like the one she released. She went on to estimate that with respect to the whole health care system (not just seniors), health insurance was responsible for about half of the six-fold increase in spending between 1950 and 1990.

Merrill Matthews: The people who don’t want to pay higher taxes or more welfare benefits ought to be promoting contraception and abortions among the poor. Instead, religious states are making it more difficult for poor women to access these services through burdensome regulations. Mississippi is down to one Planned Parenthood Clinic for the entire state. Blessed are the children, for they shall inherit the national debt.

Yep, jpastore, I messed that one. Unfortunately, for all of us, health insurance premiums will be going up. You can see today’s WSJ article to that effect. http://online.wsj.com/article/SB10001424127887324557804578374761054496682.html

They spent two- plus years putting this destructive bill together. It did not address the cost issues at all, while the economy continued to meltdown. Now that the economy looks like it may be finding a little spark, the implementation of this ineffective and acidic legislation will become a sea anchor, holding the ship of recovery in check at best and possibly pulling it under in the whirlpool at the worst.